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The ISM Manufacturing Handoff

04/03/2011

• Headline U.S. ISM Manufacturing was reported on April 1, 2011 at 61.2 vs. consensus estimates of 61.1. • This month's 61.2 follows last month's 61.4 which was the highest ISM reading since February 2004• The Production measure increased from 66.3 to 69, the highest since January 2004• New Orders declined to 63.3 from 68• Export orders declined to 56 from 62.5• Inventories declined to 47.4 from 48.8

Comments - U.S. ISM Manufacturing has been one of my leading indicators for the direction of the Equities market. Its dramatic surge over the past 24 months has underscored the initiation of a U.S. economic and Capital Markets recovery.

Over the past few months within ISM the perfect blend of Inventory rebuilding and rising demand has aided the U.S. Labor market. I expect the handoff is here, evidence exists that the Labor market is now recovering largely propelled by Manufacturing strength reflected in ISM. Therefore, I will be using future U.S. ISM reports only as an alert to whether growth is slowing and thus negatively impacting the bull trend in Equities.

To that point I acknowledge the ISM released on April 1 had some components that suggest modest slowing, in particular New Orders. Within next month's report it will be important to identify whether this month's modest slowdown evolves into something more negative. This one report does not provide enough evidence to suggest adjusting portfolio allocations.

Overall U.S. ISM Manufacturing November 2007 - April 2011Source: Bloomberg

U.S. ISM Production Component May 2005 - April 2011Source: Bloomberg

U.S. ISM New Orders November 2007 - April 2011Source: Bloomberg

U.S. ISM Export Orders November 2007 - April 2011Source: Bloomberg

U.S. ISM Inventories November 2007 - April 2011Source: Bloomberg

Past performance is not a guarantee of future results.

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